Recession reports - Emerging markets cannot save the world

Reuters reported that emerging markets will not save the world if the West slides back into recession. In an interconnected global economy, decoupling is a beguiling myth.

As fears mount that the developed world is shifting from slow growth to no growth, emerging markets seem to many economists better placed to weather the storm than they were during the great financial crisis of 2008-09. That is not universally true. India is hamstrung by high government debt and inflation. Turkey's yawning current account deficit leaves it vulnerable to an outflow of capital. Brazil is slowing under the weight of lower spending by middle-class consumers hit by rising interest rates.

The resilience displayed by the likes of China and Indonesia is evidence of a secular shift in the global economy from North to South, from West to East, rather than a substitute for zero or negative growth in the West.

For Mr Bill Belchere, global economist at Mirae Asset Securities in Hong Kong, Asia is finally reaping the benefits of policies to nurture home grown demand. With incomes across much of the continent now rising faster in the countryside than in towns, millions of peasant farmers are suddenly able to afford a motorbike and a mobile phone and perhaps set up their own small businesses.

He said that "What we're seeing is new poles of domestic growth in the larger economies. No one is totally insulated in a globalized economy, but the dynamic that is developing here is under appreciated outside Asia."

Mr Rob Subbaraman, chief Asian economist at Nomura in Hong Kong, said that the region would run into headwinds from slower exports to the United States, Europe and Japan. But he too pointed to Asia's reduced reliance on external demand. In China, for example, net exports subtracted from GDP growth in the first half of the year.

Fitch cited the increased importance of Asia as one reason why the economic outlook in sub Saharan Africa is brighter than it has been in many decades; as trade with Asia remained buoyant, Africa was less exposed than in the past to what happens in advanced countries.

The government and central bank, which has raised interest rates 11 times since March 2010, are still forecasting growth of at least 8% in the financial year that began in April. The Australian bank Westpac said in a report that the arithmetic for sustaining such a brisk clip has become more than a little daunting.